Deepening Economic Divisions

One aspect of “American exceptionalism” was always economic. US workers, so the story went, enjoyed a rising level of real wages that afforded their families a rising standard of living. Ever harder work paid off in rising consumption. The rich got richer faster than the rest, but almost no one got poorer. Nearly all citizens felt “middle class.” A profitable US capitalism kept running ahead of labor supply. So it kept raising wages to attract waves of immigration and to retain employees across the 19th century until the 1970s.

Then everything changed. Real wages stopped rising as US capitalists redirected their investments to produce and employ abroad while replacing millions of workers in the US by computers. Women’s liberation moved millions of adult US women to seek paid employment. US capitalism no longer faced a shortage of labor.

US employers took advantage of the changed situation: they stopped raising wages. When basic labor scarcity became labor excess, not only real wages but eventually benefits too stopped rising. Over the last 30 years, the vast majority of US workers have in fact gotten poorer when you sum up flat real wages, reduced benefits (pensions, medical insurance, etc.), reduced public services, and raised tax burdens. In economic terms, American “exceptionalism” began to die in the 1970s.

The rich, however, have gotten much richer since the 1970s, as every measure of US income and wealth inequality attests. The explanation is simple: while workers’ average real wages stayed flat, their productivity rose (the goods and services that an average hour’s labor provided to employers). More and better machines (including computers), better education, and harder and faster labor effort raised productivity. While workers delivered more and more value to employers, those employers paid workers no more. The employers reaped all the benefits of rising productivity: rising profits, rising salaries and bonuses to managers, rising dividends to shareholders, and rising payments to the professionals who serve employers (lawyers, architects, consultants, etc.).

Nevertheless, most US workers postponed facing up to what capitalism had come to mean for them. They sent more family members to do more hours of paid labor and they borrowed huge amounts. By exhausting themselves, stressing family life to the breaking point in many households, and taking on unsustainable levels of debt, the US working class delayed the end of American exceptionalism until the global crisis hit in 2007. Now, their buying power could no longer grow: rising unemployment kept wages flat, while no more hours of work or borrowing was possible. Reckoning time had arrived. A US capitalism built on expanding mass consumption lost its foundation.

The richest 10-15% — those cashing in on employers’ good fortune from no longer rising wages — helped bring crisis by speculating wildly and unsuccessfully in all sorts of new financial instruments (asset-backed securities, credit default swaps, etc.). The richest also contributed to the crisis by using their money to shift US politics to the right, rendering government regulation and oversight inadequate to anticipate or moderate the crisis or even to react properly once it hit.

Indeed, the rich have so far been able to use the crisis to widen still further the gulf separating them from the rest, finally burying American exceptionalism. First, they utilized both parties’ dependence on their financial support to make sure there would be no mass federal hiring program for the unemployed (of the sort that FDR used between 1934 and 1940). The absence of such a program guaranteed that real wages would not rise but fall, along with job benefits. Second, the rich made sure that the prime focus of government response to the crisis would benefit banks, large corporations, and the stock markets. These have more or less “recovered.”

Third, the current drive for government budget austerity — especially focused on the 50 states and the thousands of municipalities — forces the mass of people to pick up the costs for the government’s unjustly imbalanced response to the crisis. The trillions spent to save the banks and other select corporations (AIG, GM, Fannie Mae, Freddy Mac, etc.) were mostly borrowed because the government dared not tax the corporations and the richest citizens to raise the needed rescue funds. Indeed, a good part of what the government borrowed came precisely from those funds left in the hands of corporations and the rich because they had not been taxed to overcome the crisis. With sharply enlarged debts, all levels of government face the pressure of needing to take too much from current tax revenues to pay interest on debts, leaving too little to sustain public services. So they demand the people pay more taxes and suffer reduced public services so government can reduce its debt burden.

For example, California’s new governor proposes to continue for 5 more years the massive broad-based tax increases begun during the crisis and also to cut state services for the poor (reduced Medicaid funding) and the middle (reduced budgets for community colleges, state colleges, and the university system). The governor admits that California’s budget faces sky-high interest costs and reduced federal government assistance just when the crisis increases demands for public services. The governor does not admit his fear to tax the state’s huge corporate and private individual wealth. So he announces an “austerity program” as if no alternative existed. Indeed, a major support for austerity comes from the large corporations and wealthiest Californians who hold the state’s bonds and want reassurances that the interest on those bonds will be paid.

California’s austerity program parallels similar programs in many other states, in thousands of municipalities, and at the federal level (e.g., social security). Together, they reinforce falling real wages, falling benefits, falling government services, and rising taxes. In the US, capitalism has stopped “delivering the goods.” It now brings long-term painful decline for its working class, the end of “American exceptionalism,” and rising social, cultural, and political tensions. The reality of ever-deeper economic division clashes with expectations built up during the century of rising wages before the 1970s.

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